Targeting inflation targeting: the influence of interest groups

Abstract

We examine whether sectional interest groups influence monetary policy goals in a manner consistent with their interests as distributive coalitions. In particular, we explore whether bank groups and labor groups are associated with the incidence of inflation targeting by the central bank. Controlling for a variety of economic and institutional factors, our main findings reveal that bank groups are associated with a higher probability that a country is an inflation targeter while labor groups are associated with a lower probability. The findings are conditional on the level of democracy and on aspects of central bank independence.

Aid, Reform, and Interest Groups

“…The primary data source for these counts is the World Guide to Trade Associations. Aggregate group counts from the Guide have been used in a number of prior studies (see, for example, Murrell (1984), Heckelman (2000), Bischoff (2003), Heckelman and Wilson (2021)) that explore group formation determinants as well as the impact of groups on macroeconomic outcomes and monetary policy. The Guide has been published episodically and only six times, in 1973, 1980, 1985, 1995, 1999, and 2002.…”

Ideology and Monetary Policy: The Role of Political Parties’ Stances in the ECB's Parliamentary Hearings

“…For example, Ehrmann and Fratzscher (2011) show that politicians' preferences over the ECB's monetary policy differ depending on their national constituency. Moreover, country fixed effects capture unobservable time-invariant cross-country differences, such as culture or institutions, that may affect political attitudes toward independent central banks (de Jong, 2002;Heckelman and Wilson, 2021).…”

The redistributive politics of monetary policy

“… 8 See Heckelman and Wilosn ( 2021 ) and Weise ( 2012 ) for some who have identified effects interest groups have had on monetary policy. …”